TOKYO -- A new wave of dividend-paying mutual funds is helping to bring Japan's stubbornly bearish individual investors back to the stock market.

For the past decade and a half, most ordinary Japanese shunned stocks, disillusioned by a market that has lost two-thirds of its value since its peak in 1989. Many Japanese thought stocks were for speculators, and stuck with safer investments like bank deposits and government bonds. In Japan, only 9% of household financial assets are invested in stocks or mutual funds, according to...